STRENGTHS

WEAKNESSES

Tensions on the real estate market

Substantial household debt

Highly concentrated banking sector

RISK ASSESSMENT

Growth slowing but still strong

Swedish growth will be driven by exports and private consumption in 2019. Vigorous activity in recent years has led the economy to operate at full capacity, as evidenced in an increase in the job vacancy rate, for example. Amid high demand in goods and services, investment was boosted – particularly in the manufacturing sector, which has been running above capacity. These high levels of investment in 2018, the shortage of skilled workers, and less buoyant demand suggest that a slowdown in business investment is likely in 2019. The decline in property prices since mid-2017(after a sharp increase), should also limit investment in private construction. Unemployment, which is back to pre-crisis levels, is expected to stabilise at around 6% of the labour force, due to the fact that a significant proportion of those still unemployed are harder to employ. Despite being at a low level, wages are set to grow at a moderate pace, as social partners (unions and employers’ associations) prioritise competitiveness in the face of muted productivity growth. However, household consumption should be boosted by low inflation, which is close to the central bank’s 2% target, as well as by monetary policy, which remains very accommodative despite the prospect of a hike in the key interest rate in early 2019 (it was held at -0.5% in November 2018). A larger decline in housing prices could also constrain household consumption through a wealth effect, weakening domestic demand. However, household disposable income is expected to increase as a result of the tax cuts included in the 2019 budget. Uncertainties associated with Brexit and the rise in global trade tensions could weigh downward on this outlook, potentially limiting net exports contribution to growth.

Sound public and external accounts but private debt is vulnerable

Public finances will continue to be robust in 2019, with the budget surplus expected to converge towards its medium-term objective of 0.33% of GDP. The Sweden Democrats’ support for the centre-right opposition’s budget proposal led to the adoption of USD 2.2 billion of tax cuts (lower pension taxes, higher income tax threshold), leading to a reduction in the budget surplus. Once a government has been formed, it may review the spending plan, but cannot change taxes as these cannot be modified outside the autumn budget process. As a net lender for several years, the Swedish government has slashed its public debt-to-GDP ratio, which fell below 40% in 2018, and this decline should continue thanks to the vigorous level of activity.

The country’s external position will also remain very comfortable, with an increase in the current account surplus. More sluggish domestic demand is expected to bring slower import growth, while exports will be stronger. The downward trend in the krona should stabilise over the course of the year if monetary policy is tightened as expected. The Swedish economy is highly competitive, and exports mainly capital goods (15% of exports in 2017), cars and car parts (13.5% of exports), as well as commercial services, particularly telecommunications and tourism. Primary income, chiefly from investments, contributes to the current account surplus.

Conversely, the situation is more precarious regarding private debt, with household debt equivalent to 180% of disposable income at the end of 2018. In a context of low interest rates and a tax regime favourable to homeowners, real estate loans increased sharply, driven by price growth in large cities, especially between 2014 and 2016. A readjustment has taken place since mid-2017, with prices softening by 5% in the year to August 2018, but a more significant price fall could have an adverse impact on the banking sector, which is highly concentrated (four banks account for 85% of the market) and heavily exposed to the real estate market. Credit interconnections between banks also raise the risk of contagion.

A more uncertain political situation in the absence of a parliamentary majority

None of the traditional parties (left-wing and centre-right blocs) secured a majority during the parliamentary elections of September 2018. Although the far-right Sweden Democrats won 62 seats out of 349, no other party was willing to join forces with it. At the time of writing, the two attempts to form a new government were both unsuccessful. As the constitution allows only four rejections before new elections are organised, a new vote could be held. However, the costs associated with holding such elections could lead parties to compromise in order to form a government. Because of this fragile coalition, any government will have less room for manoeuvre than in the past, but its policy should remain pro-EU.

Sweden’s business climate is still among the most favourable in the world, coming 12th in the Doing Business 2019 ranking.

Last update : February 2019

Payment

Bills of exchange and promissory notes are neither widely used nor recommended as they must meet a number of formal requirements in order to be considered as legally valid.

Just as the rules for issuing cheques have become more flexible, the sanctions for issuers of uncovered cheques have been relaxed over the years. The use of cheques has subsequently become almost non-existent.

Conversely, use of the SWIFT electronic network by Swedish banks provides a secure, efficient, and cost-effective domestic and international fund-transfer service. Payments are dependent on the buyer’s good faith. Sellers are advised to ensure that their bank account details are correct if they wish to receive timely payment.

Direct debits represent about 10% of non-cash payments in Sweden and are quickly growing in popularity. There are two types of direct debit in Sweden: Autogiro Foretag (AGF) for B2B transactions and Autogiro Privat (AGP) for B2C payments. They can both be used for single or recurringpayments.

Debt collection

Amicable phase

Amicable settlement aims to recover the debt without transferring the case into a trial procedure. The debtor is informed (either orally or via writing, with written correspondence being preferred) about the debt, the payment deadline, and the consequences of not paying the debt. If debtor agrees to pay the debt, both parties may settle on instalment payments through an official document that sets out the contractual terms of the agreement.

When there is no specific interest clause in the contract, the rate of interest applicable since 2002 is the six-monthly benchmark rate (referensräntan) of the Central Bank of Sweden (Sveriges Riksbank), plus eight percentage points.

Under the Swedish Interest Act (räntelag, 1975, last amended in 2013), interest on damages is awarded from the 30th day following the day on which the creditor addressed a written claim for damages to the defendant, if the plaintiff so requests. In any event, interest may be awarded from the date of service of the summons application.

Legal proceedings

Fast-track proceedings

Where claims meet some basic requirements (e.g. payment is overdue, mediation was attempted), creditors can obtain an injunction to pay (Betalningsföreläggande) via summary proceedings through the Enforcement Service. The application has to be made in writing and clearly express the grounds of the claim. No further proof needs to be submitted.

This Enforcement Authority (Kronofog–demyndigheten) orders the debtor to respond within a period of ten days to two weeks. If the debtor fails to reply in time or acknowledge the debt, a verdict will be rendered on the merits of the original application.

While formal, this system offers a relatively straightforward and quick remedy in respect of undisputed claims, which has greatly freed up the courts. Creditors are not required to hire a lawyer but, in some circumstances, would be well advised to do so. On average, the process takes two months from application to decision. The decision is immediately enforceable.

Court proceedings

If the debtor contests the debt, the creditor has the decision of either turning to the District Court (the first instance, Tingsrätten) or to terminate the process.

Proceedings involve a preliminary hearing in which the judge attempts to help the parties reach a settlement after examining their case documents, evidence and arguments. It is up to the parties themselves to decide what evidence they wish to submit.

If the dispute remains unresolved, the proceedings continue with written submissions and oral arguments until the main hearing, where the emphasis is on counsels’ pleadings (defence and prosecution) and examination of witnesses’ testimonies.

In accordance with the principle of immediateness, the court bases its decision exclusively on the evidence presented at the trial. Barring exceptional circumstances, the judgement is customarily issued within two weeks thereafter.

As a general rule, the Code of Civil Procedure requires the losing party to bear all legal costs considered reasonable, as well as the attorney fees incurred by the winning party beyond a given threshold claim amount (about SEK 22,250, approximately €2,162).

It takes up to twelve months (in exceptional cases more) to obtain a writ of execution in first instance, bearing in mind that there is a widespread tendency in Sweden to appeal against judgements.

Enforcement of a Legal Decision

As soon as a domestic judgment becomes final, it is enforceable. If the debtor does not comply, the creditor can request the court’s enforcement authority to seize and sell the debtor’s assets.

For awards rendered in an EU member-state, special enforcement conditions are provided. When the claim is undisputed, the creditor may apply to the European Enforcement Order, or when the claim does not exceed €2,000, the creditor may start a European Small Claim Procedure. For awards issued in non-EU countries, the Svea Hovrät Court of Appeal must recognize an award in order to enforce it, provided that a recognition and enforcement agreement has been signed between the non-EU country and Sweden.

Insolvency Proceedings

Out-of court proceedings

Swedish law does not formally regulate out-of court arrangements. Nevertheless, creditors and debtors can enter into voluntary negotiations in order to negotiate the debt and reach an agreement.

Restructuring

The aim of restructuring is to find a financial solution for an insolvent company that is deemed to have sustainable long-term business prospects. It can apply for a restructuring with the local court. If approved, the court will appoint a rekonstruktör to manage the restructuring. The latter will investigate the financial situation of the company, before establishing and implementing a restructuring plan under which up to 75% of the debt may be written off.

Bankruptcy

Bankruptcy proceedings are initiated as a consequence of a company becoming permanently insolvent. They aim to wind down an insolvent company by selling its assets and distributing any income to creditors. Either the debtor or the creditor can file a petition before the local court. After the court has declared a company bankrupt, it appoints an administrator that independently takes control over the company’s assets with the main task of realising such assets and repaying the debts of the bankruptcy estate in accordance with the creditors’ statutory ranking.